The Importance of Prioritizing Digital Resilience in the Banking Sector

As financial institutions accelerate their digital modernization and transformation efforts, it’s crucial to remain vigilant about potential risks. Initiating new product and service developments should involve early engagement from risk management departments. These departments must adapt and acquire new skills to meet the evolving demands of banks, with a focus on agility.

The expenditure of banks reflects their struggle to maintain operational resiliency. The cybersecurity spending of major banks has quadrupled since 2015, reaching hundreds of millions annually. With the shift towards cloud-based business models, a significant portion of these funds will be allocated to cloud security. Preventing data breaches is a costly endeavor, but vital to maintaining customers’ trust in their banks. Confidence-building among customers is paramount in the banking sector. In a broader context, resilience demands a comprehensive understanding of operational risk management rooted in a solid grasp of a bank’s strategic goals and technological agenda.

Urgent Need for Change and Modernization

The ongoing pandemic has prompted reforms across industries. For banks, the urgency to adopt new technology and transition into more digital enterprises became paramount due to financial challenges, heightened competition, regulatory scrutiny, and evolving customer behaviors. However, during this digital shift, resilience should not be overshadowed by speed. The banking industry requires adaptable, scalable technology to thwart and respond to cyber threats around the clock. Astute chief risk officers (CROs) should not only recognize the associated risks with these changes but also offer effective management strategies.

Beyond enhancing customer experience and personalization, establishing a more efficient operating model emerged as the main driver for digital modernization and transformation. Organizations often turn to the cloud, particularly the public cloud, for transformation purposes. While many CROs believe that banks can migrate to the cloud securely and efficiently, concerns remain about security risk capabilities (59%) and the ability to modify existing risk capabilities (46%). Addressing these issues would significantly bolster digital resilience.

Elevating Expectations for Risk Managers

To ensure the resilience of digital systems, risk management practices must evolve alongside technological advancements. This necessitates the right mindset and skill set. Given the pace of change in various sectors, risk management needs to keep up with other departments. Skill acquisition is a top priority. The modern CRO must be well-versed in the risks of cloud computing, predictive analytics, and specialized expertise. Emerging technologies like machine learning (ML) can either benefit or pose risks to the company. Familiarity with agile methodologies and modern processes and development approaches is crucial.

Despite the rise in cyberattacks, disruptions from third-party providers, and stricter penalties for data breaches, the pace of digital transformation continues. Chief risk officers and their teams play a critical role in ensuring a company’s transition to the modern era is smooth and resilient. The success of transformation plans hinges on integrating automation and data with core risk practices.

Preparing for the Shift to Digital Banking in 2023

The banking sector faces constant pressure to future-proof business models, focusing on improved customer experiences, cutting-edge technology, maintaining existing relationships, and exploring new revenue streams. While digital banking advancements have been made, many institutions still lack confidence in their preparedness. Sopra Steria’s findings indicate that despite progress in digital banking transformation, confidence in future preparedness remains strong, attributed to shifts in consumer preferences:

The rapid pace of technological advancements often results in fragmented implementations, limiting their potential to enhance legacy processes and customer experiences. The business environment is dynamic, with agile fintech startups and digital giants offering banking services alongside their non-banking products. Increasing regulatory complexity demands adherence to privacy, open banking, transparency, and ESG criteria, even with varying compliance rules within the same industry.

In Conclusion

Economic uncertainty is on the rise, negatively impacting banks due to factors such as rising interest rates and global economic instability. This financial unpredictability sometimes deters investments in innovative technologies.